Industrial Production Strengthens In July

Market CommentariesIndustrial Production Strengthens In July

U.S. industrial production has risen at its strongest pace in eight months, according to data issued at 9:15 AM (EDT) this morning by the U.S. Federal Reserve. In all, such output increased by 0.6% last month, two-tenths of a percentage point better than had been generally forecast and well ahead of the downwardly revised 0.1% gain tallied in June. This latter rise originally had been estimated at 0.3%.

The latest output gain sends a bullish signal for third-quarter economic growth, which we have been forecasting to be on the order of 2.5%, or so. Although we see little reason at this point to adjust our expectations, the production strength, which was principally led by a nice gain in auto output, could well establish a floor on GDP expectations for the current three months.

Meanwhile, the rise in output largely reflected a 0.8% gain in factory production, which is by far the largest of the three components that comprise the industrial production report. Among the factory output components, the latest formidable increase was spurred by a 10.6% surge in motor vehicle production. That gain more than offset a drop in the auto sector the month before.

In addition to the notable 0.8% rise in manufacturing, or factory, output, the nation's mining operations saw a 0.2% increase in production in July, while output at the nation's utilities, the third of the three factory components, fell by 1.0% last month.

Of note, the step up in aggregate production in July pushed the level of capacity utilization up to 78.0% last month. That was in line with expectations, and above both the downwardly revised June usage level of 77.7% and the original estimate for such utilization in June of 77.8%.

Overall, this was a constructive report and gives us some further confidence that the nation's economy, notwithstanding continuing headwinds, should advance at a decent pace in the months to come.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.